Nine tips to cut costs and boost profits

Chris Ridd

Cutting costs is the easiest and fastest way to improve a business’ profitability – every dollar you save goes straight to the bottom line.

Make a resolution for the new financial year: analyse your costs and see where you can save money.

Start by identifying your major costs.

If you’re using small business accounting software, this should be easy. Costs are categorised into expense type and supplier, so you can generate a list of expenses, starting with the most costly.

The next step is to start at the top of the list and to see where you can cut back.

Another method is to print out monthly expenses for the past couple of years, and compare each month with the corresponding month two years earlier. You’ll be able to see which expenses have risen sharply and try to do something about them.

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Here are nine tips to help you cut business costs:

Check for overcharging

Go through invoices from your suppliers to see if you’ve been overcharged, for example by way of double billing or incorrect charges for goods or services. And if you’re receiving a discount on standard fees or charges, make sure it has been applied to the invoice.

Get three quotes

The next time you need something from a regular supplier, get a couple of quotes from other suppliers. That way you can check if your supplier is still competitive. It’s better that your business is not too reliant on a single supplier anyway. If you get a lower quote from a supplier’s competitor, chances are your preferred supplier will probably try to match it.

Manage your finances

Consider whether you’re paying accountants or bookkeepers to do tasks you could easily do yourself with accounting software. Use your accountant to best advantage by seeking out their value-added services, like advice on how to grow your business.

Rethink your premises

Have you got office space you’re not using or are you a consultant who’s on the road a lot? You might be better off moving to a smaller office or even serviced offices. Even if you stay where you are, think about whether you can renegotiate your lease. You’ll be in a strong bargaining position if there is already a lot of vacant space in the area you’re based in.

Examine your insurance contract

Check your business insurance policy to see when it’s up for renewal and start negotiating early. If you wait until your next invoice arrives you won’t have time to look around for a better quote without risking leaving your business uninsured. Also, look through the policy to check that you’re not paying for cover for equipment or vehicles you no longer own.

Cut unnecessary travel

Rethink your business travel and eliminate trips which don’t generate revenue, such as conferences. If you have to travel, get organised and avoid last minute bookings, which are a lot more expensive. Or, instead of chewing up money on travel costs, consider using free technology like Google Hangouts or Skype.

Hang up on unneeded phone lines

Check to see how many landlines your business is paying for. Do you really need them all? With the increased use of mobile phones you probably don’t. In fact, consider doing away with the landline altogether and using internet-enabled VOIP phones instead.

Watch out for bulk discounts

Common wisdom is that it’s best to buy in bulk and save. But stop and think next time you’re tempted by 10 or 20 per cent off for spending big. Will you really use all those extra supplies, or will they just clutter up your premises? Business cards are a classic example; if you get 2000 printed, will you still have 1500 left when you decide to update your branding?

Go green

If you haven’t already installed energy saving light bulbs, now is the time to do it. And start printing on both sides of the paper. Finally, clean the filter on the office air conditioner, which will help it run more efficiently and use a lot less power. You’ll be surprised by how the savings add up.

There you have it – nine smart tips for cutting costs and boosting the bottom line.

Here’s one final tip. When you go through each item of your costs, don’t just ask yourself if you can find it cheaper somewhere else. Ask if you really need it at all or if there’s a smarter way of doing it. For example, do those documents you need to send to clients really need to be sent by post or can send them electronically?

Chris Ridd is the head of small business accounting software provider Xero Australia